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MUMBAI (Reuters) - Ford Motor Co. plans to set up a plant in India to make diesel engines, an industry source told Reuters on Tuesday, as consumers in the fast-growing market shift to the more fuel-efficient option.

The plant would have a capacity to make about 100,000 units of the 1.4-liter Duratorq engine each year, the source said.

Ford, which makes 60,000 vehicles a year at a plant near the southern city of Chennai, now buys petrol engines from a unit of Hindustan Motors Ltd. and imports diesel engines.

Asked for comment by Reuters, Ford India's head said the company was studying "various localisation opportunities."

"It is dependent on having the appropriate levels of volume and technology available in India," Arvind Mathew said in an e-mail response.

In August, Mathew told Reuters that the Indian vehicle market would lean more toward diesel.

Ford's Endeavour sport utility is a diesel model and 70 percent of sales of its Fiesta model have diesel engines. The Fiesta is powered by the 1.4-liter Duratorq diesel engine.

Ford could also launch a diesel variant of the Fusion fairly easily, Mathew said in August.

Diesel's share of the Indian passenger vehicle market is forecast to rise to 35 percent by 2010 from 30 percent now, according to estimates by J.D. Power.

Top car maker Maruti Udyog Ltd. plans to roll out a diesel car shortly, and number two Hyundai Motor Co. is investing $500 million in an engine and transmission plant in Chennai to make about 400,000 petrol and diesel engines a year.

Tata Motors Ltd. , the third-biggest car maker, will make a small diesel engine with its joint venture partner Fiat.

Ford India makes the Ikon, Fiesta and Fusion mid-size sedans and the Endeavour sport utility at its Chennai factory.

In August, Mathew said Ford expected to sell 50,000 vehicles in India this year, double what it sold in 2005, and could raise its production capacity to 100,000 units.